Big-Tech Stocks Face Risk of Regulatory Reckoning

Big-Tech Stocks Face Risk of Regulatory
Cheyne Gateley/VIP

As rapper Notorious B.I.G. famously once said, “Mo Money, Mo Problems.” And that sentiment couldn’t be any truer than it is for Big Tech.  

For starters, it’s called “Big” Tech for a reason. Tech titans Amazon, Apple, Alphabet and Facebook are some of the most valuable companies in the world, and they represent a huge chunk of the stock market. The same handful basically drove the stock market to record highs this year. 

In 2020, Big Tech’s dominance continued to grow, as people around the world relied on their goods and services to get them through a global pandemic.  

Since the start of the year, Apple and Amazon saw the most monstrous gains, with both stocks surging more than 70%. Meanwhile, Facebook and Alphabet surged around 30%, while the S&P 500 rose about 14% during the same period.

What makes these gains even more impressive is the fact that these behemoths thrived not only amid a pandemic but while facing serious regulatory scrutiny. 

As we enter a brand-new year, Big Tech’s battle with regulators is about to get even more intense. And the fight has never been more important than it’s about to be. 

With the new Biden administration taking office in January, even if there is a split Congress, some believe that his administration could be more aggressive than his predecessors were about regulation. 

The list of cases and investigations into Big Tech is getting longer. In late October, the U.S. Justice Department sued Google, alleging the company used anti-competitive practices to maintain its monopoly over search. The following month, regulators in the European Union slapped Amazon with antitrust charges alleging the company used data on its third-party sellers to gain an unfair advantage. The Federal Trade Commission along with attorneys general from 46 states sued Facebook Dec. 9 for maintaining dominance in social media illegally and is now looking to break up the company. 

And most recently, 10 states sued Google last week for conspiring with rival Facebook to rig ad auctions. The latest development in the Google-Facebook debacle peels back the curtain on the possible inner scheming that goes on behind closed doors between the tech giants to maintain power and influence in their respective markets.

For quite some time, investors have largely shrugged off the regulatory risk, and Big Tech’s stocks proved to be resilient amid all the regulatory overhangs. Well, it might not be as easy going forward.  

Since the FTC lawsuit was announced less than two weeks ago, Facebook shares fell 1.8% and have been underperforming the broader market’s 0.6% gain as well as its tech peers. The exchange traded fund (ETF) tracking tech stocks, XLK, rose 3% during the same period.  

But for those worried about a possible breakup of Facebook, it probably wouldn’t happen quickly and some experts even argue it would be unlikely. On the off-chance Facebook does get broken up, what is Facebook to investors without its lucrative Instagram and WhatsApp businesses? Would its investors stick around? 

Yes, the regulatory threat has existed for a long time, but as we’ve seen in recent weeks, the clouds hanging over Big Tech stocks are darkening. And to put it bluntly, the livelihood of the Big Tech companies and their investors truly lies with what happens next on the regulatory front.